Chidambaram plans to rewrite I-T Act, raise FDI in insurance

THE Finance Minister, Mr P. Chidambaram, is planning to rewrite the income-tax law. Also high on his agenda is an omnibus insurance law that would help the Government to raise the FDI limit in the insurance sector from 26 per cent to 49 per cent.

"The proposal to hike FDI in insurance has not been put off. We will have to introduce a Bill. Some other amendments are required to both the Insurance Act, 1938 and the IRDA Act, 1999. All amendments would come together," he said in an exclusive interview to Business Line, a day after presenting the Union Budget for 2005-06.

He also said that he proposes to completely rewrite the existing Income-Tax Act.

"The intention is to bring a brand new I-T Act," Mr Chidambaram said, while asked to elaborate on his announcement in the Budget that he intended to place before Parliament a revised and simplified Bill.

The Finance Minister hinted that the reference to `sales promotion including publicity' would be removed from the ambit of the newly introduced Fringe Benefit Tax.

"That is the only entry that they (the industry) have pointed out to me and I have said that we will find out why it is there."

Mr Chidambaram said that the Government and the Reserve Bank of India were in complete harmony over the guidelines for ownership in private banks released by the banking regulator on Monday.

"We have had long discussion with the RBI and we have agreed on what has been put out by the RBI."

The voting rights in private banks would be made proportionate to economic ownership, as has been proposed by the RBI, he added.

On the issue of having a super-regulator for the financial sector in view of the convergence of products offered by banks, Mr Chidambaram said that no such proposal was under consideration.

Also missing from the Government's agenda is a hike in the foreign investment limit in public sector banks. "For PSU banks, whatever the regime today would continue," he said.

Once again defending his proposal to impose a tax on cash withdrawals from banks, Mr Chidambaram said that he had introduced the tax after looking through records on large cash transactions, which, he hinted, are startling.

"You do not have the information about cash withdrawals that I have. The point is should large cash withdrawals with no ostensible purpose be discouraged or not? If the answer is yes, then they must be discouraged, then people should be slowly pushed into a cheque economy," he said.

He added that he was confident that the VAT regime would come into force from April 1 this year.

"I am reasonably sure (about VAT implementation). Why should State Finance Ministers lose their nerve? After all seven years they have worked through successive Governments. They have come to a consensus, they have put out a white paper and they have declared the date they have agreed upon the rates."

(This article was published in the Business Line print edition dated March 2, 2005)

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